How Is the U.S. Trade Balance Shifting?

While headlines about the U.S. trade deficit may focus on manufacturing and goods, St. Louis Fed economist B. Ravikumar said it’s worth remembering services’ part of the overall trade equation.

He told the audience at a recent Dialogue with the Fed event that the U.S. has been running a trade surplus in services for a long time. While the trade deficit as a whole is getting larger, he said, “the service value is definitely on the positive side.”

The trade balance is going in a particular direction: lower trade balances when it comes to manufacturing, but surpluses when it comes to services.

And although manufacturing has seen declines in U.S. employment share, Ravikumar said the U.S. is the world’s No. 1 producer of capital goods—and productivity has increased. “In some sense you could argue that, well, we were victims of our own success because we were so productive in terms of labor productivity, we shifted labor from manufacturing to services.”